Dolat Capital is bullish on Nucleus Software Exports has recommended buy rating on the stock with a target price of Rs 450 in its research report dated July 25, 2019.
Dolat Capital's research report on Nucleus Software Exports
Nucleus Software reported modest quarterly performance with a 10% YoY growth in revenues (lower than our estimate of 14%) and 260bps decline in EBIT margins at 12.3%. The revenue miss was largely led by soft 8% YoY growth in the Product business (78% of revenues) as it witnessed large number of go-lives (23) during the quarter. Services business (22% of revenues) grew by 20% YoY during the quarter. The EBIDTA margins slip was largely on account of soft revenue bookings (down 2.3% on QoQ basis) as total expenses remained flat on sequential basis. Although the financial performance for Q1FY20 was quite modest, company reported stupendous growth of about 23% QoQ in its unexecuted order book at Rs4.6bn with 8 client additions. Product/Services order book were up 24%/19% QoQ at ` 4.1bn/0.5bn respectively. The order book traction was quite encouraging and would ensure double digit revenue growth for FY20. We believe that the company’s cloud-native software offerings are getting tremendous acceptance in the marketplace and is leading to improved deal wins for the company.
Outlook
We expect Nucleus Software to be key beneficiary of the ongoing digital-transformation in the BFSI segment and expect it to deliver 11%/14% CAGR in its Revenue/EBIT over FY19-23e and initiate coverage with a Buy rating on the stock with a DCF based TP of ` 450 per share (implied PEG of 1.1x on FY21E earnings).
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